On Friday June 24, 2011, Niko Resources Ltd. (Niko), a TSX-listed international oil and natural gas exploration and production company, entered a plea of guilty to a single charge under Canada’s Corruption of Foreign Public Officials Act (CFPOA), the first major public enforcement action Canada has taken since its 1999 proclamation.  The conviction of the Company marks a notable milestone for Canada’s enforcement of its foreign anti-corruption statute, and an earlier announcement that there are currently 23 ongoing corruption investigations should raise awareness among Canadian enterprises involved in foreign contracting and natural resource exploration and development. (Click here for a Copy of the Indictment against Niko Resources Ltd.)

Niko pleaded guilty to the charge that between February 1, 2005 and June 30, 2005, it provided goods and services to a person for the benefit of Foreign Public Officials to induce officials to use their position to influence acts or decisions of a foreign state, in order to obtain or retain an advantage in the course of business.  The background to the event was a January 2005 explosion at the Company’s Bangladesh affiliate’s natural gas field facility near a rural village which resulted in significant damage and claims for environmental contamination.

By any standard, the facts involved in the Niko case were flagrant. (Click here for a Copy of Agreed Statement of Facts in the Niko Resources Ltd. case.) Through an agreed statement of facts between the Company and the Crown filed in Court of Queen’s Bench, Calgary, it was admitted that Niko Resources (Bangladesh) Ltd. provided a Toyota Land Cruiser SUV valued at $190,000 ($Cdn) to the Bangledesh State Minister for Energy and Mineral Resources in order to influence him in dealings with that Company.  Niko also paid travel and accommodation expenses (valued at $5000) for that official to travel to Calgary and New York and Chicago, to attend a conference and visit family.  A letter written by Niko's Bangladesh Country Manager to The Bangladesh Petroleum Exploration & Production Company Ltd. (BAPEX) acknowledged delivery of the vehicle and expressed thanks on behalf of Niko Management for support given in past and “…hope to receive the same in the coming days for the mutual benefit of NIKO and BAPEX Joint Venture.” Arising from concern among Canadian diplomatic corps, Canada’s Head of Mission in Bangladesh met with Niko Bangladesh's President, who initially dismissed the gift as a “commonplace part of doing business in Bangladesh” and that “…these things are done all the time” and a “cost of doing business.” Niko’s CEO was not alleged to have had any knowledge of the circumstances.  The recommended fine of $8.26 million (plus mandated fine surcharges of an additional 15%) was agreed to on the basis of the Company’s co-operative stance with RCMP investigators (who commenced their investigation in 2005), but also reflected its substantial market capitalization of over $5 billion, with the Company’s Counsel reported to have stated that larger deterrent penalties are warranted for successful enterprises.  The Company also agreed to a three-year corporate probationary term, during which it must take steps to improve compliance in this area.

Canada’s CFPOA, enacted in 1999, creates an offence (with unlimited corporate fines and maximum 5-year imprisonment) to bribe a foreign public official.  The range of persons covered under the statue includes not only direct employees of foreign states, but also persons performing public duties for the foreign state, including those employed by boards, commission, corporations, or other body or authority performing those duties or functions.  Bribes (within the definition of “benefit of any kind”) may be given, offered, or agreed to be given or offered not only to the foreign public official, but to any person (such as a family member) for that person’s benefit.  

The offence requires that the benefit be given in connection with performance of the official’s duties or functions, or to induce the official to influence acts or decisions of the foreign state or public international organization, in order to retain or obtain an advantage in the course of business. Limited defences are permitted for so-called facilitation payments of a minor nature to secure an act of a “routine nature” by the official (such as obtaining permits, processing official documents, or obtaining public services).

Canada has been lagging behind international foreign anti-corruption enforcement, with Transparency International recently observing that there had been “little or no enforcement” here.  By contrast, the U.S. has become remarkably active in this area, with prosecutions under its Foreign Corrupt Practices Act (similar to Canada’s CFPOA but with certain reporting requirements) being stepped up from prosecutions of only two individuals and fines of $11 million in 2004 to indictments against over 50 individuals in the years 2009-2010 and fines totaling nearly $2 billion.  U.S. officials have used accompanying money-laundering charges to ratchet up the pressure on individual defendants and secure significant penalties, which have included jail terms.  Worldwide, the Organisation for Economic Co-operation and Development (OECD) reported in 2010 that there were 260 ongoing international bribery investigations, with approximately one-quarter of all individuals charged with bribery offences receiving jail sentences.

In the Niko case, no individuals were charged. This may reflect either jurisdictional impediments and/or a lack of evidence implicating individual executives (as noted, the CEO indicated he had no knowledge of these activities).  Under Canadian law, individual executives (and their companies) may be liable for prosecution not only where they engage in deliberate intentional conduct, but also where they may be “willfully blind” to corrupt conduct by other company officials that would cause suspicions to be raised, but deliberately refrain from making inquiries into the activity.  Note as well that it is not necessary to establish that the company or individual obtained any benefit as a result of the corrupt conduct:  the giving of the benefit is sufficient (as it was in the Niko case, where there was no proof that any corporate benefit resulted).

Effective compliance and audit programs for entities involving foreign contracting or natural resource exploration and development should properly include increased attention to the risk of violation of both Canadian and international anti-corruption statutes. Heightening concerns in this area is the imminent application of the U.K.’s Bribery Act, which will come into effect on July 1, 2011.  The Bribery Act, applying to all companies conducting business in the U.K., has several stringent enforcement provisions including a strict liability corporate offence for failing to implement provisions to prevent bribery, and the criminalization of “commercial” bribery as well as public-sector bribery.  The combined effect of these various international enforcement measures, as well as Friday’s enforcement action against Niko Resources should highlight the potential consequences of violating corruption laws in worldwide operations.